The four measures, taken as a whole, are likely to be administratively complicated, costly, and slow, and so have very limited effect in arresting (let alone reversing) the decline of housing prices by reducing the glut of houses for sale as a result of widespread foreclosures. [Cram down in bankruptcy] fails on both grounds; bankruptcy is a complicated proceeding and having to declare bankruptcy, especially under Chapter 13, which does not wipe out all one’s debts, will be an unattractive option for even mortgagors otherwise inclined to abandon their house. [Liquidation of mortgage-backed securities] involves the vexing problem of valuing mortgage-backed securities in order to decide what to pay for them. [Loan Refinance] and [Loan Modification] are administratively very complex because they involve (as does [cram down] for that matter) separate negotiations or proceedings for each mortgage.
Does the recession, and the high foreclosure rates on homes, justify these unusual steps that will retard rather than hasten downsizing of the housing market? I do not believe so. Posner shows that the plan has many unattractive features, including that it would be a bureaucratic and administrative nightmare. In addition, it will almost surely cost far more than the $75 billion price tag that the administration attaches to the plan. This magnitude of spending on a complicated housing program seems like a bad idea when so much money is being committed toward other programs to help the economy: about $800 billion in a fiscal stimulus package, and probably much more than that in the Treasury’s and the Fed’s efforts to help banks become solvent and active in the lending market. I am also worried about increasing Fannie and Freddie’s stake in the housing market when their policies have contributed significantly to the excessive sub prime mortgage lending.